No deposit? No problem

As rental costs continue to soar and interest rates plunge there’s never been a better time to explore the move towards home ownership – and if you don’t have a deposit, there’s no need to despair.

The year ahead looks like it’s going to favour the buyer when it comes to property. While prices are unlikely to fall dramatically, there are certainly bargains out there.

For many aspiring buyers raising a deposit can be an obstacle however. The good news is that there are plenty of products available to borrowers who can service a loan but don’t have the traditional 20 per cent down payment.

There are a number of options for you to consider depending on your particular situation.

The most straightforward solution is a high LVR (loan-to-value) loan. A few years ago the maximum percentage of a property value a lender would consider was 80 per cent, however today it’s a different story.

Lenders are now more willing to offer borrowers higher loan values as long as they can meet their loan commitments. This means would-be buyers who can’t stump up a large deposit are no longer shut out of the market.

As long as you are able to service a higher percentage loan and you are prepared to pay lenders mortgage insurance (LMI) you may be able to borrow 95 per cent of the property value or in some cases even higher.

Alternatively you may be able to secure a higher LVR loan with the support of a guarantor.

This essentially engages the support of parents or another third-party that already owns their own property and is prepared to guarantee a proportion of your loan.

As guarantors, their property will be used against your loan as collateral. The guarantor can choose how much of the loan will be secured against the property up to 100 per cent, but 20 per cent is often considered to be a standard amount.

This approach may assist borrowers avoid the added expense of LMI and could help support your case when applying for a for a higher LVR loan.

DRIVE YOUR MORTGAGE DOWN

A higher LVR loan means borrowing more to finance your property. However there are a number of effective strategies to drive your mortgage down:

Make additional payments: Try to pay more than the minimum repayment each month; even a few extra dollars each month will add up.

Switch to fortnightly repayments: Essentially means you’ll make 13 rather than 12 monthly repayments over the course of the year, thereby driving down the principal amount owned on your mortgage and interest payable over the life of your loan.

Capitalise on lump sum payments: Place any lump sums received, such as tax refunds, into your mortgage to drive the principal down. Check with your broker that your mortgage has this facility.